CMT – CIMB
Smooth sailing
• 1H08 in line; full contributions from CapitaRetail Singapore properties. CMT’s 2Q08 results were in line with Street and our expectations. Reported distributable profit of S$58.6m, representing DPU of 3.52cts, formed 25% of our full-year DPU forecast of 13.9cts. Gross revenue of S$125.6m was up 21% yoy, aided by full contributions from Bukit Panjang Plaza, Lot One Shoppers’ Mall and Rivervale Mall. 1H08 DPU of 7.01cts was also in line with expectations, forming 51% of our estimate.
• Rental renewals and occupancy remained high. 1H08 rental rates increased 9.9% over preceding rates. Assuming an average 3-year lease, the average annual increase was 3.3%. Portfolio occupancy was 99.9% as at 30 Jun.
• Update on asset enhancements. CMT has paid the differential premium and stamp duties of S$65.2m to the URA following approval for the maximisation of unutilised gross floor area of about 386,000 sf at Funan DigitaLife Mall. CMT plans to erect four storeys of office space on top of the existing retail space at Funan. Including the fee for lease top-up to 99 years, CMT estimates the land cost for office development at S$247 psf, significantly below the S$1,010 psf average seen in recent government land sales. CMT is likely to proceed with its maximisation work after securing its anchor tenant(s). We estimate that work could commence in late
2008 or early 2009.
• Maintain Neutral and target price of S$3.64. We remain positive on CMT’s ability to mitigate inflationary effects with the incorporation of step-up rentals and gross turnover (GTO) rents for more than 85% of its retail tenancies. CMT is also expected to sustain the organic growth of its portfolio with continued enhancement work. Nonetheless, we expect the drag on yields from Atrium@Orchard to continue till the full potential of its integration with Plaza Singapura is realised in 2010. Potential contributions from Funan’s office space have not been factored in pending details. We remain Neutral on CMT with an unchanged target price of S$3.64, based on DDM valuation (discount rate 9.7%).